Bad for business

Governments profess adherence to free, open markets because they have seen that this system works best. The huge growth and development of the world economy has been because of this free market approach. Open competition just works; it gives cheaper, better quality goods and services.

Despite this, governments just can’t keep their hands off. Their policy response to a problem is to step in and tinker with the operations of the private sector when there’s a complaint about that sector. But time and time again, it has been proven that too much regulation is bad for business. Placing excessive controls on the way companies conduct business—in securing permits and licenses, testing and inspecting products, and even in determining the prices of goods and services—runs contrary to the spirit of competition, and is just bad overall for the economy and the public.

Now, I admit some control is necessary, particularly where safety is concerned. Some minimum standards must be met, but they must be just that: minimum. A case in point right now is rebar, the steel rods that are put inside concrete posts to strengthen them. A manufacturer wanted to put up an induction furnace factory to produce them. The Board of Investments said no—the process causes pollution and the quality of rods can’t be assured. Think of a 30-story building in a 6.5 earthquake. You want guaranteed strength for its concrete beams. Quality rebar provides that. So it’s a sensible intervention by the government.

But one that isn’t as sensible is shipping costs. Cost is not a safety issue, and the government should let the market set what those costs will be. Yet a number of traders are asking the government to step in and control the shipping rates of international shipping lines. There are pending proposals to regulate these fees and charges, claiming they are too high and make things uncompetitive. Proponents of the fee regulation argue that shipping lines impose excessive and questionable destination charges on the consignees.

So we at The Wallace Business Forum, together with Dr. Epictetus Patalinghug, conducted a study on the importance of the international shipping industry and its role in the Philippine economy. We presented the results of this study last Oct. 30, in front of stakeholders composed of government officials, foreign dignitaries and trade commissions, business leaders and experts in the academe.

According to the study, the fees and charges do follow internationally acceptable standards. Dr. Patalinghug concluded that an additional layer of regulation, which is currently being considered by the government, will disrupt trade and affect the competitiveness of the Philippines.

If shipping costs are controlled, ships won’t come. The Philippines is a small market, so ships already come at a cost to drop off the few containers destined for here. If they are not allowed to recover the costs in doing that, they will skip us. The high costs traders complain of aren’t caused by excessive shipping costs, but by infrastructure inefficiency. Our study shows that Manila ranks well below the global performers, such as Singapore and Shanghai, both in port productivity and efficiency. And I don’t have to tell you about the traffic once you leave the port. That inefficiency is where the higher cost is.

Another area where the government wants to interfere right now is in the price of medicines. I’ve talked about this before—it’s not the way to go. It’s hugely popular, as no one wants to pay for medicines, but forcing price reductions is misunderstanding the problem and applying the wrong solution. The problem is with the poor; they can’t afford drugs at any price, so reducing prices is meaningless. Instead, government buying in bulk will achieve the wanted price reduction. PhilHealth can then give these medicines to the poor. The middle class can afford the drugs. If they don’t want to, they can buy generics at a much lower cost. In those cases where generic medicines don’t exist yet, the Department of Health (DOH) can discuss such specific cases with the company concerned for possible solutions.

But to target 120 drugs and tell companies they must halve the cost will lead to companies wondering whether they should be in this market at all. It seems to me that the DOH only has a case if it can show that the price of a particular drug is deliberately overpriced to maximize profit. As far as I can tell, the DOH has not had that detailed discussion with the companies that would be affected. To be fair to them, it should have that discussion.

Email: wallace_likeitis@wbf.ph